Take Advantage of New Tax Adjustments in Planning for 2023!

Tax adjustments happen every year, but this provides an excellent opportunity to review and plan for a better personal tax situation for 2023. Let’s take a look at the changes! Legislation has given even more planning opportunities for employees and retirees than usual. The planning opportunities for 2023 fall into three broad categories: tips for current workers, tips for retirees, and ongoing strategies.

Updates for Current Workers

Here are some items that people who are currently working will want to review for the new year:

• New Tax Brackets and Standard Deduction: Tax brackets and the standard deduction are all indexed to inflation. The large numbers in 2022 created bigger changes than usual in 2023, making it worth reviewing tax withholding.
• Higher 401k (and 403b and 457) Employer Plan Contribution Limits: 2023 will see an increase from $20,500 ($27,000 if age 50+) to $22,500 ($30,000 if age 50+) that can be added to your employer retirement plan.
• Higher IRA and Roth IRA Contribution Limits and Phase Outs: The contribution limits to IRA and Roth IRA accounts will also increase, potentially in addition to employer plan contributions. There will also be an increase to the income limits regarding when your ability to take advantage of these plans starts to phase out.
• Health Savings Account Increases: For employees with a health savings account (HSA), the amount that can be contributed to the plan will also increase in 2023.
• NEW Employer Matching 401k Contributions as Roth: Starting in 2023, employers may start allowing employees to take matching contributions as Roth contributions rather than pre-tax contributions. This is brand new and opens up significant planning opportunities.

Updates for Retirees

Retired individuals will also see several changes in 2023 to plan around:

• NEW RMD Age Increased from 72 to 73: The biggest change for retirees in 2023 is the delay of the first required minimum distribution (RMD) from age 72 to 73. Individuals turning 72 in 2023 now have an additional year of flexibility for things like Roth conversions or other strategies to minimize taxes over their lifetimes.
• Social Security Benefits and Medicare Premiums: Social Security will get an 8.7% increase in 2023. The base monthly premium for Medicare will decrease from $170 to $165.For higher earning retirees, the thresholds for Medicare’s IRMAA surcharge will be increasing.

Ongoing Planning Opportunities

There are several ongoing planning opportunities as individuals start looking ahead at 2023:

• Qualified Charitable Contributions (QCD): For individuals who are at least 70½ years old, qualified charitable distributions (QCDs) from an IRA may be one of the most tax-effective ways to give to charity.
• Roth Conversions and “Backdoor” Roth IRA Contributions: Depending on your current income and current retirement accounts, Roth conversions or “backdoor” Roth IRA contributions may allow more savings into accounts that will grow tax-free in the future.
• Tax Loss Harvesting: With the decline in both stock and bond markets in 2022, there may be more opportunities than usual to sell investments at a loss and offset taxable income realized in other areas.

The Bottom Line

The new tax changes have created significant planning opportunities to review. It’s worth exploring how your personal tax situation may benefit from making adjustments in 2023. At Merriman, we live and breathe this stuff so you don’t have to. We are happy to answer your questions and partner with you to develop and/or refine the best approach for your taxes for 2023. Schedule some time with us today!

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.